Use of Territorial Water Areas as Collateral – Finland's Next Steps in Promoting Offshore Wind

Authors: Katja Heikkinen, Elisa Panula, and Janne Veneranta

As the green transition has been progressing swiftly during the past couple of years in Finland, the interest in offshore wind has also grown, and there are currently several offshore wind projects under preparation in the territorial waters and the exclusive economic zone of Finland. The Finnish Government has recently initiated several legislative processes that aim to promote the development of offshore wind in both of these areas. One of these legislative initiatives was published in April 2024, when the Finnish Government presented to the Finnish Parliament its proposal for amending the Land Code. This proposal includes several key changes, including clarifications regarding the registration of rights of use to the water areas in the territorial waters as well as the utilisation of these rights as collateral. The goal is for the amended Land Code to enter into force as soon as possible, but at the latest on 11 November 2024.  

The Finnish territorial waters are managed by Metsähallitus, a state enterprise managing state-owned land and water areas on behalf of the State of Finland. Based on its operating model, Metsähallitus selects sites for potential offshore wind power projects, carries out initial development of these areas, and arranges tenders where it selects partners for the development of its offshore wind power projects. The selected partners will be granted a right of use to the water areas by Metsähallitus for the purposes of offshore wind power development. The operating model and the rules applicable in the exclusive economic zone are different, and the amendments to the Land Code (which are not applicable in the exclusive economic zone of Finland) are anticipated to be followed by a new government proposal for an act on wind power in the exclusive economic zone that clarifies the rules in the exclusive economic zone. 

The Land Code regulates the types of rights of use to a property that must be registered in the title and mortgage register maintained by the National Land Survey of Finland and that can be used as a security in financing arrangements. The Land Code currently stipulates that a land lease right and other fixed-term rights of use to another party’s land must be registered in the title and mortgage register and can be subject to a mortgage, provided that such rights can be transferred to a third party without hearing the landlord and that there are buildings or equipment belonging to the right holder on the property or that such buildings and equipment can be constructed on the property based on the agreement. Given the current wording of the Land Code, it has been open to interpretation whether a transferable fixed-term lease right or other right of use to a water area can be subject to a mortgage and whether a registration obligation applies to such right.

To improve the financing options available for the offshore wind projects in the territorial water areas, the provisions of the Land Code should be clarified to reflect the needs of such offshore wind projects. The mortgageability of the right of use to the water areas and the wind turbines and other buildings and equipment located thereon is a crucial element for market-based construction of the offshore wind projects. Consequently, based on the government proposal, the Land Code would be amended so that a land lease right or other transferable fixed-term right of use to a water area would be subject to the registration obligation and could be mortgaged. To ensure that the title and mortgage register contains comprehensive information about such rights of use to the water areas that are subject to the registration obligation, it is further proposed that right holders whose rights to a water area were established before the enactment of the amended Land Code must also register their rights. A two-year transition period would be provided during which these right holders are required to register their rights.

Similarly to the registration obligation and mortgageability of land lease rights and other fixed-term rights of use to another party’s land, the registration obligation and mortgageability of a right of use to a water area would require that there are buildings or equipment on the area that belong to the right holder or that such buildings and equipment can be constructed on the area based on the agreement. The government proposal specifies that, when applying this provision to the water area, the buildings and equipment must have an integral and permanent connection to the seabed. For offshore wind projects, this could mean, for example, that the foundations of the WTGs would be constructed to the seabed or that supporting elements would be anchored to it. The wording of the government proposal is intended to capture various types of offshore wind turbine foundations, from fixed foundations such as monopile, gravity, and jacket based to floating foundations.   

The government proposal is expected to proceed to the handling of the Finnish Parliament during this spring. The amendments to the Land Code, if approved in the proposed form, will improve the bankability of offshore wind projects located in the territorial waters managed by Metsähallitus and support the creation of a clearer legislative environment for such offshore wind projects.

Hannes Snellman advises clients on a regular basis with respect to, inter alia, the permitting, construction, operation, and financing of energy projects, including onshore and offshore wind. Our experts at Hannes Snellman are closely following the development of the energy sector and the related legislative regimes. Please contact us should you wish to discuss any related questions.